The economics of stronger families
by John Hood
John Locke Foundation
In my latest column for Business North Carolina magazine, I argue that policymakers who seek to make North Carolina’s economy more competitive can’t afford to ignore the seemingly unrelated issue of family stability.
“Economic and social policy often follow separate tracks,” I write. “But when it comes to the health of the family, the tracks converge. While people can continue to disagree about the religious or moral foundations of family life, there is simply no room for debate about the larger consequences of family stability. Higher rates of divorce and out-of-wedlock births raise the cost of government and, thus, act as a drag on economic growth.”
Strong families are the building blocks of strong communities, and thus strong economies. Their economic role as producers of valuable goods and services in the household, and as investors in the human capital of future generations, may not sound romantic or “fun.” But it is fundamental to how human societies really function, or fail to function.
Worried about chronic poverty, particularly among children? Rising rates of divorce and single parenthood are key causal factors. Indeed, a Brookings Institution analysis estimates that nearly all of the increase in child poverty since 1970 is attributable to these trends. They also help to explain declines in economic and social mobility over time.
Worried about educational mediocrity and persistent gaps in student achievement by race? Again, family structure is a key causal factor. Carefully targeted preschool interventions for poor children of single parents may help somewhat (universal preschool, by the way, is a waste of tax dollars) as can education reforms based on academic rigor, performance pay for educators, and more schools of choice for parents. But reversing the trend of family breakup would make at least as big a difference.
Worried about unfunded liabilities, burgeoning entitlements, and uncompetitive tax codes? It’s hard to see how federal or state policymakers can make meaningful, lasting headways on these issues without a reversal of the current trends for families and children. Single parenthood is highly correlated with demands for government programs such as Medicaid, Food Stamps, housing subsidies, and cash assistance. And as Social Security and Medicare became mainstays of life as a retired American, the traditional relationship between seniors and their adult children radically changed.
Did the decline of the family cause entitlement and public-assistance spending to grow? Or did the expansion of these programs help cause the decline of the family? There is evidence for both propositions, suggesting that the trends are mutually reinforcing, thus contributing to a vicious cycle. A recent study from the National Bureau of Economic Research, for example, found that poor people who remain dependent on public assistance for long periods of time tend to save less for the future, invest less in themselves, and make more unwise decisions. “In short,” the authors conclude, “poverty perpetuates itself by undermining the ability to exercise self-control.”
Given the enormity of the problem, some might be tempted to wring their hands and wallow in pessimism. I favor a different response. The first step to addressing a problem is to admit that you have one. If we can build a broad consensus behind the idea that family formation and stability are important goals, progress becomes possible. While much of that progress can come only from private action – from individuals making better decisions and helping their own relatives, friends, and neighbors do the same – some public-policy changes can help:
• Policymakers should use work requirements, time limits, and other tools to discourage long-term dependency on public assistance, not just cash welfare. At the same time, they should change eligibility rules and reform the tax code so that single parents who marry don’t face large, adverse financial penalties for doing so. The government doesn’t have to be in the marriage-subsidy business. What it really needs is to, as much as possible, get out of the business of subsidizing single parenthood as a way of life.
• As Marianne Takas explains in this Christian Science Monitor op-ed, governments ought to provide public assistance to recipients as families, rather than assuming the second parent (usually but not always the dad) is out of the picture. Takas also persuasively argues that it ought to be simple and quick for couples with children to marry. The required forms ought to be readily available at birthing hospitals, for example.
• To restore the traditional economic and social relationship between seniors and adult children, policymakers need to signal an clear end in the future to the use of Medicaid as a middle-class entitlement for long-term care. They should also allow personal accounts within the Social Security system to encourage real investment in capital assets that can be spent or left to heirs, rather than trying to prop up the current Ponzi scheme with future benefit cuts or tax hikes.
Again, the health of the family primarily relies on personal decisions and behaviors that lie far outside the proper scope of government action. But that doesn’t mean the issue is irrelevant to public policy. Some of our biggest problems will remain unsolvable unless more families form and thrive in the future.
Hood is president of the John Locke Foundation.
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